Accounting Scenarios for Students

The assignment provides four accounting scenarios for students to practice their skills. Scenario 1 involves preparing journal entries and revaluing a truck asset. Scenario 2 covers leasing a motor vehicle, with journal entries for both the lessor and lessee. Scenario 3 includes disposing of a truck asset and calculating gain on disposal. Scenario 4 deals with research & development expenses, advertising costs, and sales. The assignment requires students to apply accounting principles, such as depreciation, amortization, and revaluation, to these scenarios.

Financial Accounting Processes

TABLE OF CONTENTS
PART B QUESTIONS....................................................................................................................3
SCENARIO 1..................................................................................................................................3
Q.1 preparing general journal entries to record the above transactions......................................3
b. preparing the equity section of chiherbals statement of financial position :-..........................4
SCENARIO 2..................................................................................................................................5
a. Journal entries of ChiHerbal Ltd and classifies Residential land and Factory land as
different classes of assets.:-.........................................................................................................5
B. Preparing the journal entries and revaluation of truck............................................................5
SCENARIO 3..................................................................................................................................6
A) preparing the journal entries for the lease transaction the book of lessor(Easy rental):........6
B. Preparing the journal entries for the lessee transaction in the book of lessee.........................7
SCENARIO 4..................................................................................................................................7
a....................................................................................................................................................7
b...................................................................................................................................................8

PART B QUESTIONS
SCENARIO 1
Q.1 preparing general journal entries to record the above transactions
Date Particulars Ref.no Debit Credit
01/09/18 Redeemable preference share capital a/c
Premium of redemption preference share capital
to preference shareholders
( 40000 preference share at 6% redeemable and
5% premium from the retained earning)
2400
2000
4400
25/08/18 Preference shareholders a/c
to bank a/c
(cheque issued to preference shareholders)
4400
4400
01/11/18 Cash at bank a/c (51200*.40)
to equity share application a/c
(application money received for right share issues)
194560
19456
0
30/11/2018 Equity share application a/c
discount on issues of share a/c
to equity share capital a/c
(ownership is given 1 share for 5 held)
194560
10240
20480
0
20/12/16 Underwriters brokers a/c
to bank a/c
(underwriting commission paid)
4800
480
0
10/01/19 General reserve a/c
Retained Earning A/c
(director transfer $56000 from retained earning to
general reserve)
56000
56000
28/02/19 Share application a/c
share capital a/c
(Class 3 shares are issued at a price of $3.60)
201600
201600
30/04/19 Share capital a/c
share application a/c
201600
20160

(Unexercised option lapse) 0
31/05/19 Shares final call a/c
share capital a/c
(the final call is paid up on partly paid up shares
but 12000 share money due)
364800
364800
18/06/19 Share capital a/c
Forfeited share a/c
share final call a/c
(Forfeiture of 12000 shares of $4 each due to non
payment of final call of $1.60 per share)
48000
2
8800
1
9200
26/06/19 Bank a/c
Forfeited a/c
share capital a/c
(forfeited share are reissued at discount price)
43200
4800
4800
0
26/06/19 Forfeited shares a/c
capital reserve a/c
(after reissue of share forfeiture a/c transferred to
capital reserve account)
4800
48
00
27/16/19 Share holders a/c
forfeited share a/c
(pay refund to formal holders of forfeiture shares)
4800
4800
Working note:-
Portfolio value before right issue= 320000*4=1280000 $
no. of right shares= (256000 *1/5)= 51200
cost of purchasing new share using the rights=51200*3.80= 194560
b. preparing the equity section of chiherbals statement of financial position :-
Shareholders Equity Amount (in $)
64000 shares of ordinary class 1 shares issued at $4 256000
256000 rights shareholders of class 1 issued 3.80$ 972800

SCENARIO 2
a. Journal entries of ChiHerbal Ltd and classifies Residential land and Factory land as different
classes of assets.:-
Date particulars Debit Credit
30/06/18 Residential land a/c
to revaluation surplus
(Upward adjustment of $176000 is required to building a/c)
176000
176000
30/06/18 Depreciation a/c
Revaluation deficit a/c
to factory land a/c
(downward adjustment of $320000 is required for factory
land)
160000
320000
480000
30/06/18 Building account a/c
to revaluation surplus
(Upward adjustment of $160000 is required to building a/c)
160000
160000
B. Preparing the journal entries and revaluation of truck.
1.Cost of truck= 480000
2.Salvage value= 220000
3. useful life of the year = 8 years
cost of the truck-salvage value= 260000
annual depreciation amount= 260000/7 =37143
Date Particulars Debit Credit

01/07/16 Depreciation a/c
to truck a/c
(depreciation charged for the first year)
37143
37143
01/07/17 Depreciation a/c
to truck a/c
(depreciation charged for the second year)
37143
37143
01/07/17 Truck a/c
to P/L a/c
( truck evaluation was 400000 but in books the valuation
is 405714 so profit transfer to P/L account)
5714
5714
01/07/18 Depreciation a/c
to truck a/c
(after the revalued value new depreciation amount must
be charged)
36333
36333
01/07/18 Bank a/c
depreciation a/c
to truck
to gain of disposal
(disposal of truck)
220000
110619
155095
175524
SCENARIO 3
A) preparing the journal entries for the lease transaction the book of lessor(Easy rental):
Date Particulars Debit Credit
30/06/19 Chi herbal
to motor vehicle
( journal entries for leasing the vehicle)
83200
83200
30/06/20 Cash
Chi herbal(24000-2400)
finance income(24000%6)
(the reduction in lease shall reduce over next year)
24000
21600
2400

B. Preparing the journal entries for the lessee transaction in the book of lessee
Date Particulars Debit Credit
30/06/19 Leased motor vehicle a/c
to easy rental Ltd.
(leased motor vehicle from easy rental Ltd.)
83200
83200
30/06/20 Easy rental Ltd
interest expenses
to cash
(interest paid and implicit cost record in the book of chi
herbal).
21600
2400
24000
SCENARIO 4
a.
Date Particulars Debit Credit
2016 Research and development expenses a/c
to bank a/c
( R&D cost are recognize the as an expense during the
period )
350000
350000
2017 Legal expenses a/c
to bank a/c
(Expenses incurred during the patent for new bags)
22000
22000
2018 Advertising cost a/c
to bank a/c
(large marketing campaign for new bags)
650000
650000
2018 Bank a/c
to sales a/c
(total order of $2 million received within four months)
2000000
2000000

b.
Research and development shall be accounted for in the accordance with paragraph 54-
62. it means in process of research and development expenditure should recognized as an
expense during the period. Prototype may the result in the physical substance with research and
development activities. Expenditure on start-up activities like advertising and promotional
activities considered in the AASB 116 and paragraph 18-67. patent in five years would be
amortized over the five year of its useful life but in that scenario chi herbals have the patent only
for 4 years. For the residual value at 60% of its fair value and it can be reviewed in AASB136 .